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Former Social Capital Partners Make First Investment Since Exit

(Bloomberg) -- Social Capital, the high-profile venture capital firm helmed by former Facebook Inc. executive Chamath Palihapitiya, has seen several notable partner defections in recent months. Three of them—Arjun Sethi, Jonathan Hsu and Ted Maidenberg—started a new firm together, called Tribe Capital. Now, that firm has made its first investment: cryptocurrency startup SFOX Inc.

Tribe is leading a $22.7 million round of funding for the cryptocurrency trading platform, which aims to centralize prices from different exchanges into one app. Social Capital, which is also participating in the funding round, had previously invested in the company, with Sethi as the lead partner. This time as part of Tribe Capital, Sethi will join SFOX’s board.

“We’re a venture capital firm that is fairly generalist, but fintech has been a focus of ours and mine for some time,” Sethi said. “I’ve been watching SFOX grow since even before my time at Social."

Besides SFOX, Sethi has backed several financial technology startups in the past, including AlphaFlow Inc., Cozy Services Ltd. and Penny.

Under Palihapitiya, Social Capital became one of the hottest firms in Silicon Valley, but faltered recently--seeing several of its partners announce their departures over a short period of time. Maidenberg, one of Social Capital’s founding partners, said he would step down last year. Sethi and Hsu said they would leave this summer. Soon after, Tony Bates and Marc Mezvinsky, husband of Chelsea Clinton, also headed for the exits.

In a Medium post in June titled "Only the Paranoid Survive," Palihapitiya outlined the firm’s new direction, stressing that it would double-down on data-driven decision making. Tribe Capital also appears to value some of the same industries and tactics. The firm is still raising funding, and declined to give a target amount.

Its debut investment, SFOX, has a platform aimed at institutional investors rather than retail customers. The startup’s main clients include hedge funds and family offices, which are likely to be trading larger amounts of cryptocurrencies. Despite the recent tumble in the price of Bitcoin from its record late last year, SFOX said that its user base is still growing rapidly and that institutional interest has remained resilient.

SFOX is vying for a highly coveted customer base. Earlier this year, for instance, Coinbase Inc. launched Coinbase Prime, a product geared specifically for institutional investors. Even Wall Street firms like Goldman Sachs Group Inc. are looking at ways they could get involved.

“The biggest thing here is recognition that institutions want more than just trading; they are looking for a broader set of tools so they can manage their crypto assets,” said Akbar Thobhani, chief executive of SFOX. “More and more Wall Street will want to get involved, but the challenge most of them are having is that the platforms they’ve built for trading things like equities doesn’t transfer to crypto."